May 16, 2022 1:58 pm

Debt with the IMF: with secrecy and in “permanent contact with Washington”, this is how Martín Guzmán went through the eve of a key day

A total secrecy reigns in the Treasury Palace on the eve of the first maturity of debt with the International Monetary Fund (IMF) of the year. Argentina has to pay the body US$718 millones for the concept of capital, while on Tuesday he should make another transfer of US$368 million to pay interest.

The Minister of Economy, Martín Guzmán, has until today at midnight to send the payment order to the Central Bank, who will have to transfer the money tomorrow to the account that the entity has in the IMF. Only then will a drop in the level of reserves be noticed, which today ended at US$38,517 million (US$355 million less than yesterday).

Guzmán did not have a public agenda on Thursday, he remained “in permanent contact with Washington”, according to their spokesmen, with Sergio Chodos, the representative of Argentina before the IMF, “co-pilot”.

As the minister himself had advanced, the main difference with the IMF is in the speed with which the zero deficit would be reached. While Guzmán proposes to achieve fiscal balance in 2027, the Fund usually asks for a faster reduction, between two or three years after reaching an agreement.

The government criticizes the “major adjustment proposed by the IMF” it will stop the recovery of economic activity, which last year was better than expected by the Government and by analysts, with GDP growth of around 10%.

Economists, however, point out that the main threat to economic growth is the lack of dollars. Although agreeing with the IMF does not guarantee the arrival of investments, analysts point out that entering into arrears with the Fund will generate a brake on the financing of other multilateral organizations.

Countries that have investments in Argentina could also suspend transfers, as happened in Santa Cruz with the “Néstor Kirchner” and “Jorge Cepernic” dams, which are financed with credits from China. This issue could be under discussion in the presidential tour to that country next week, despite the fact that the government decided not to bring any official from the energy area.

The silence of the Government about whether it will make the payment generated a new day of uncertainty in the markets, which was reflected with the rise in free exchange rates: the blue advanced two pesos and closed at $223 (up $15 so far this month), while the cash with settlement (CCL) -the dollar used to transfer foreign currency abroad- already comfortably over $230.

Since the official dollar is close to $105, the exchange rate gap remains at 110% and generates trade distortions: importers advance purchases abroad, because they believe that the exchange rate is cheap, while exporters prefer to delay their sales.

The pessimism of the economic agents was accentuated when it was confirmed that the central bank it had to sell reserves again to supply the lack of supply in the exchange market. The entity divested US$100 million, the highest daily amount since the beginning of the year and, in the last 10 days, sold US$250 million.

The data is not minor in the midst of negotiations with the IMF. In fact, the freely available reserves of the Central Bank are around US$1.5 billion, according to the consultant 1816. In case of facing the two payments with the Fund, it would be left with just US$435 million of net reserves. In addition, this amount must be subtracted from the payment of US$193 million that must be made to the Paris Club this month.

The economic consultants considered that the crucial day would be March 21, when Argentina must pay US$2,800 to the Fund and, 10 days later, another US$1.9 billion to the Paris Club. But the lack of reserves and upward pressure on parallel exchange rates hastened concerns about going into arrears with the Fund.

The alarms went off more specifically after the exposure of Guzmán with the governors at Casa Rosada, when he made public the differences with the IMF. After that failed meeting, where the minister also wanted to show unity with the opposition (but that photo did not take place), both the President and Guzmán intensified their criticism of the organization.

Guzmán said last week that, “If the IMF pushes Argentina into a destabilizing situation, it will also have less legitimacy in the future”, in an interview he gave to the French agency AFP. While the President indicated days ago that “when the adjustments arrived, our people suffered”, in reference to the alleged request of the body to agree.

On the other hand, on behalf of the IMF, the body’s number two, Gita Gopinath, sought to lower the tension and pointed out that they are working closely with the Government with a “pragmatic and flexible” approach. “We hope to make further progress in the coming days,” the Indian economist told a news conference. The reserves of the Central Bank and the concern about the increase in the exchange rate gap show another reality: the Government does not have many days left to negotiate.

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